Monro beats estimates as margin expansion, positive comps drive turnaround
Auto parts retailer delivers fourth straight quarter of comparable store sales growth while cutting inventory by 16%
Monro Inc. delivered stronger-than-expected third-quarter results, beating earnings estimates by 17.6% as margin expansion and a fourth consecutive quarter of positive comparable store sales signaled progress in the automotive service provider's turnaround efforts.
The Rochester, New York-based company reported adjusted diluted earnings per share of $0.16 for the fiscal third quarter ended January 28, exceeding analyst projections of $0.12 to $0.14. Gross margin expanded by 60 basis points year-over-year to 34.9%, driven by operational efficiencies from a strategic store rationalization program.
Revenue declined 4% to 293.4 million, falling short of the $295.2 million consensus estimate. The shortfall reflected the impact of closing 145 underperforming stores during the first quarter of fiscal 2026 as part of a comprehensive portfolio review. Despite the revenue decline, comparable store sales from continuing locations rose 1.2%, marking the fourth consecutive quarter of positive comps—the company's first sustained comparable sales growth streak in years.
"We achieved a gross margin of 34.9%, an increase of 60 basis points compared to the prior year, and reduced inventory by more than $28 million, or 16%, since the end of March," the company said in its earnings announcement. The inventory reduction represents a significant working capital improvement at a time when many retailers are grappling with excess stock.
Chief Executive Officer Peter Fitzsimmons provided encouraging forward-looking commentary, noting that sales momentum continued into fiscal January with preliminary comparable store sales up almost 1%. "Higher expected consumer tax refunds should provide a tailwind to top-line trends for the remainder of fiscal 2026," Fitzsimmons said, adding that the company "continues to expect to deliver positive comparable store sales for the full fiscal year."
Monro maintained its quarterly dividend of $0.28 per share, representing an annualized yield of 5.38% at current levels. The dividend distribution underscores management's confidence in cash flow generation despite ongoing transformation efforts. The company, however, declined to provide formal fiscal 2026 guidance, stating only that it would offer perspective during its earnings conference call.
The margin improvement and positive comparable sales trends reflect the benefits of Monro's store closure strategy, which eliminated 145 underperforming locations earlier in fiscal 2026. The closures resulted in $14 million in net gains from real estate dispositions and $7.3 million in operational savings, helping to reduce operating expenses to $83.8 million, or 28.6% of sales, from $94.8 million, or 31.0% of sales, in the prior-year quarter.
Analyst sentiment remains mixed on the stock's prospects. Wells Fargo maintained an Equal Weight rating in January, raising its price target to $18 from $15, while other firms have expressed concerns about the long-term impact of electric vehicles on traditional automotive repair demand and the company's reluctance to provide specific quarterly or annual guidance.
Monro's shares, which have gained more than 70% from their 52-week low of $11.61, currently trade at around $20.03, giving the company a market capitalization of approximately $607 million. The stock remains below its 52-week high of $21.77, suggesting room for further appreciation if the turnaround gains momentum.
The company now operates 1,115 company-owned stores and 48 franchised locations following its rationalization efforts. With consumer tax refunds expected to provide a near-term catalyst and operational improvements beginning to show results, Monro faces the test of sustaining its positive comparable sales momentum while navigating a rapidly evolving automotive aftermarket landscape.